ECB Annual Report on supervisory activities

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Non-performing loans have indeed been a big issue in 2016. What is the current state of play? Banks and supervisors have certainly accomplished much already. Nonetheless, non-performing loans, or NPLs, remain a big issue. They are like dead weight in banks’ balance sheets: they curb profits, and they limit the capacity of banks to extend credit to the economy. The guidance we devised will help banks to clean up their balance sheets. It fosters consistent forbearance, recognition, provisioning and disclosure for NPLs. And it urges banks with high levels of NPLs to define and implement specific reduction targets. The best practices defined by the guidance constitute our supervisory expectations. Our Joint Supervisory Teams have already started to actively engage with banks on how they plan to implement the guidance. But the issue of NPLs is not just one for banks and their supervisors. How quickly a bank can resolve its NPLs also depends on the national legal and judicial systems. And in some countries, these systems hamper the speedy resolution of NPLs. Here, national policymakers could help the banks. They could make judicial systems more efficient, increase access to collateral, create fast out-of-court procedures and align fiscal incentives. You mentioned risk management as one of your priorities for 2017. What is behind that? It is clear that banks always and everywhere need sound risk management – after all, they are in the business of taking and allocating risks. But sound risk management is complex, and it requires a number of elements. First of all, it requires the right culture – a culture where risk management is valued and not seen as a roadblock on the way to higher profits. More formally, sound risk management requires sound governance structures – risk managers must be given a voice that is heard by those who take decisions. In June 2016 we published the results of a related review which showed that many banks still need to improve in this regard. Finally, sound risk management requires good data. That is why in 2017 we will assess how banks comply with relevant international standards. As a related issue, we have launched a major project to assess the internal models that banks use to determine their risk-weighted assets. These internal models are important because risk-weighted assets form the basis for calculating capital requirements. And finally, we will initiate a thematic review to take stock of banks’ outsourced activities and scrutinise how they are managing the associated risks. Looking further ahead, what is your vision for European banking supervision? How does it serve both the public and the banks? For banks, supervision is like a counterweight that improves stability: banks tend to see the returns, supervisors tend to see the risks; banks tend to care about profitability, supervisors tend to care about stability. By playing their role, banking supervisors prevent banks from excessive risk-taking, thereby helping to prevent future crises. They protect savers, investors, taxpayers and the entire economy. <strong>ECB</strong> <strong>Annual</strong> <strong>Report</strong> on supervisory activities 2016 − Introductory interview with Danièle Nouy, Chair of the Supervisory Board 7
European banking supervision has the additional benefit of a dedicated European perspective. Looking beyond national borders, it can spot risks early on and prevent them from spreading. Acting independently from national interests, it can be a tough and fair supervisor for all banks in the euro area. So it helps to create a level playing field, with everyone sharing the same opportunities and the same responsibilities. This is the foundation on which a truly European banking sector can grow for the benefit of the entire economy. <strong>ECB</strong> <strong>Annual</strong> <strong>Report</strong> on supervisory activities 2016 − Introductory interview with Danièle Nouy, Chair of the Supervisory Board 8
Page 1 and 2: ECB Annual
Page 3 and 4: 5.2 Feeing framework 2016 67 6 Lega
Page 5 and 6: Introductory interview with Danièl
Page 7: Speaking of banks, how are the Euro
Page 11 and 12: exposed banks to ensure that they w
Page 13 and 14: The quantitative impact of the adve
Page 15 and 16: Figure 2 gives an overview of the S
Page 17 and 18: 1.2.2 Work on other methodologies T
Page 19 and 20: Figure 4 Ratio of non-performing lo
Page 21 and 22: Chart 4 On-site inspections mainly
Page 23 and 24: The IT risk methodology was also re
Page 25 and 26: Based on the assessment methodology
Page 27 and 28: the year, JSTs actively monitored t
Page 29 and 30: frequency, duration and resources.
Page 31 and 32: Finally, the ongoing cooperation be
Page 33 and 34: 2 Authorisations, enforcement and s
Page 35 and 36: Annual assessment
Page 37 and 38: Table 5 Most authorisation procedur
Page 39 and 40: towards harmonisation by developing
Page 41 and 42: Chart 5 Enforcement and sanctioning
Page 43 and 44: 3 The SSM as part of European and g
Page 45 and 46: In 2016 the ECB in
Page 47 and 48: An ECB representat
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Page 53 and 54: In the course of 2016 the E
Page 55 and 56: Supervisory Board Front row (from l
Page 57 and 58: Chart 8 Number of requests for revi
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Regarding gender diversity, the dis
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4.4 Implementation of the Code of C
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4.6 Data reporting framework and in
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• 1,295 public enquiries received
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supervisory fees (“the Fees Regul
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Total amount levied €404.5 millio
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More information on supervisory fee
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prudential purposes by national com
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Table 3a Composition of assets by r
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jurisdictions. Fit and proper asses
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SSM Regulation: the legal act creat
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ECB Annual Report on supervisory activities

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